Failed bankers should have bonuses clawed back, says Gordon Brown

Bankers who fail will be forced to hand back previous bonuses under plans
Gordon Brown has vowed to introduce.

The Prime Minister is desperate to get a grip on the row over large bonuses given to bankers who have presided over the meltdown that forced the Government to bail out the banks.

He warned that there was now a need for stringent new rules to halt future rewards for failure and endorsed the controversial idea of reclaiming payments from bankers if it later turned out they had failed.

He said: "It should not be a one-way bet. In other words, if you fail there is a clawback which is also possible within a bonus system."

Mr Brown added: "The short-term bonus culture of the banks has got to end, and we are putting in measures that will bring that to an end."

The Financial Services Authority should have powers to penalise banks who were rewarding traders for doing "short-term deals".

He said: "Any system has got to be based on long-term performance and that will have to be policed in the future by the FSA."

Mr Brown also told members of the Commons Liaison Committee that he takes "full responsibility" for the appointment of Sir James Crosby, the former head of HBOS who resigned from the FSA on Wednesday.

Sir James stood down after he was accused of sacking a senior executive, turned whistle-blower, who warned that the bank was "going too fast" and taking too many risks.

Mr Brown had approved Sir James's appointment to the FSA, the City watchdog, in 2003 when he was Chancellor.

He said: "I of course take responsibility for the decision."

But he added that an appointment committee had recommended Sir James for the role. The committee had concluded that Sir James was an "outstanding individual."

He said: "They acted as the independent assessors and they recommended Mr Crosby for appointment as a leading industry practitioner with broad experience both as an actuary fund manager and a retail banker.

"They said he was an outstanding individual with a strong intellect. That was the recommendation made to me in 2003.

"No information, of course, was given to the Treasury about the issues raised between the FSA and HBOS. These were regarded as ordinary issues that were normally dealt with by the interaction between the FSA and HBOS.

"The FSA are statutorily responsible for their action in this area. I believe that the right decisions were taken."

Appearing before the House of Commons Liaison Committee, Mr Brown added that at the time of Sir James's appointment to the board of the FSA in 2003, the Treasury was not aware that the watchdog had just carried out an investigation into risk-taking at the bank as a result of Mr Moore's warnings.

He said: "Of course, in retrospect, we know that HBOS had a problem with its business model, more to do with that than the issues that have been raised in the committee."

Paul Moore, the former head of global risk at HBOS, told the Treasury Select Committee this week that it was Sir James who had sacked him for raising concerns about the way HBOS was pursuing the expansion of its business.

He said he had been gagged after leaving the bank in 2005. Sir James denies the allegations.